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Monday, September 9, 2013

Stock Market Crash Coming Soon

I have posted literally dozens of “crash-posts” by
pundits predicting a crash in the markets.They are almost all missing the most critical piece of information: When?

Here’s a post from ZeroHedge where “Variant Perception”
says a crash is coming between now and the beginning of Q4 2013.Q4 begins 1 October 2013.

CRASH COMING (Zero Hedge)

“Via a mathematical framework, that has been empirically
shown to accurately model bubbles, and give a prediction for when they will
ultimately come to an end, Variant Perception (VP) investigates the
S&P 500 today. The framework suggests a window of time within which the
S&P will experience a 'regime change', which may involve a steep price
drawdown. Using this framework, VP predicts this regime change will occur any time between now
and the beginning of Q413.” Story at Zero Hedge at…

MARKET REPORT
Monday, the S&P finished up 1%to 1672
(rounded) at the close.

VIX was down 1.4% to 15.63.

Today was a statistically significant day as measured by price and volume
so a down day is suggested for tomorrow, likely followed by further down days
in the short-term.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks
advancing on the NYSE was up slightly to 52% at the close Monday.(A number above 50% for the 10-day average is
generally good news for the market.)

New-highs outpaced new-lows today leaving
the spread at +123 (it was +67 Friday), with the 10-day moving average of
change in spread positive and trending up.

The Internals are positive on the market

BACKTESTING MARKET INTERNALS – OK, BUT NOT
FOR TRADING

I report internals, because I think they
give clues about future market direction, especially when there is divergence. However,
I decided to do a back-test of the market internals to see if they are truly
predictive of market action in the short term on a daily basis.Looking at charts vs. the S&P 500, the
internals I report do SEEM to be
accurately suggesting future market movement, but patterns can be deceiving. My back-test consisted of 3-market-internal, indicators
that needed to agree with each other for a buy or sell signal.I found they slightly underperformed the
S&P 500 over the last 2-years by about 3% each year. Since they
underperformed, there is no point in back-testing 10-years (nor going into
detail about the indicators).The fact
that they underperformed by a fairly small number shows there is some
correlation and one could conclude that the internals (the way I am using them)
are an OK trend following indicator,
but not great.I’ll need to do more work
to see it the internals can be tweaked to find a better predictive indicator.

I remain about 20% invested in stocks as of 5 March (S&P 500
-1540).The NTSM system sold at
1575 on 16 April.(This is just another
reminder that I should follow the NTSM analysis and not act emotionally – I am
under-performing my own system by about 2%!)I have no problems leaving 20% or 30% invested.If the market is cut in half (worst case) I’d
only lose 10%-15% of my investments.It
also hedges the bet if I am wrong since I will have some invested if the market
goes up.No system is perfect.

Followers

About Me

I am an engineer with a lifelong interest in "playing with numbers" so what could be more fun than trying to develop a system that beats the stock market? Well, lots of things, but I decided to do this anyway.
While I am not a finance-professional, or professional investor, I have developed some skills.
I competed in two CNBC Million Dollar Portfolio contests finishing in the top 4% in 2008 (34,320th of 800,000) and the top 0.1% (448th of 500,000) in 2009. More importantly, I managed to sell out of my retirement accounts at or near the top in 2000 and 2007 and bought close enough to the bottom that I didn’t lose too much sleep. (Even Bill Gates lost SOME sleep.)
I hope that my thoughts will help you achieve your investing goals. Please remember that my ideas are free and there may be times when my ideas are worth less than what you paid.